A new report by the non-partisan Congressional Budget Office reminds legislators that tax increases and spending cuts set to take effect automatically in January threaten job growth significantly in the coming year. But for the first time, CBO has analyzed (PDF) the economic consequences of specific provisions within the sequester. And it turns out the least harmful component of the coming fiscal consolidation is precisely what Democrats are demanding: the expiration of the Bush tax cuts for high earners.CBO doesn’t examine the top bracket Bush tax cuts directly. But it does look at two competing scenarios: One where all of the expiring tax cuts except for the payroll tax cut are extended; another where all of the expiring tax cuts except for the payroll tax cut and the Bush tax cuts for top earners are extended.
The former, CBO says, would increase employment by 1.8 million full time equivalent employees in 2013 relative to allowing everything to lapse. The latter would increase employment by 1.6 million. The difference, 200,000 full time equivalent jobs, is attributable to the expiration of the top bracket Bush tax cuts alone.
By comparison, other layers of the fiscal cliff save less money and have far greater economic consequences. Failing to extend the expiring payroll tax cut and expiring emergency unemployment benefits through 2014 would cost the economy about 800,000 jobs, according to CBO. The two halves of the sequester — the defense cuts and the domestic cuts — would each cost the economy about 400,000 full time equivalent jobs.
The findings run counter to GOP claims that allowing the top-bracket Bush tax cuts to expire would kill 700,000 jobs, and to the broader notion that protecting tax cuts for wealthy Americans should be the highest priority of legislators hoping to promote a balanced mix of economic growth and fiscal responsibility.